BackOur exposure to NSEL was limited as we saw the risks
Religare's Basab Mitra points out what the company has done to safeguard the interest of investors
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Markets have been hurting investors for quite some time now. Equity, debt and currency, all have borne the brunt of widespread pessimism in the markets.
Basab Mitra, chief executive officer (capital markets and wealth management), Religare, talks about the company’s action plan to navigate the volatile markets. He also points out what the company has done to safeguard the interest of investors and what plans it has in the short and long term.
You have three businesses under the Religare umbrella—Religare Securities Ltd, Religare Wealth Management Ltd, and Religare Capital Markets Ltd. How are they doing in such market conditions?
We saw the downturn in sentiments about a year-and-a-half back and took action. For example, in the retail broking business, we did significant cost optimization and reduced risk. We moved towards the retail segment and focused more on technology and products, far from the traditional leverage-based business that was Religare’s forte. We are currently at break-even in the broking business which is not the place we want to be but it’s a good achievement given the markets. It has been complemented by the fact that we have reduced our risk profile and we’ve improved the quality of earnings.
The wealth management business has grown over the last two-three years at a CAGR (compounded annual growth rate) of about 30% in terms of AUM (assets under management). I think the business has attained stability. Some of our advisory-led actions meant that we actually told clients to stay away from things that looked attractive till six months back but are now turning out to be bad. One example is NSEL (National Spot Exchange Ltd). We advised on the risk of NSEL because we always saw counter-party risks. Also, we have been very particular about real estate and some other asset classes.
You said wealth management has been doing well. What has worked?
I think people have realized a few things—do simple things well and do it consistently for a long period. Wealth management is one such business. You have to be client-focused every day, stay away from temptation of selling products which will give you short-term revenue. You have to be advisory-led all the time and need a stable relationship manager force. If you get these three-four aspects right consistently, there is no way you can fail. It’s only when you start distributing products for short-term gains, you start leaving the principles of advisory-led wealth management, or when there is significant churn is your relationship manager workforce, you will face challenges.
You advised clients to stay away from NSEL. Why?
To say you are going to get a 15% return on a zero-risk product is like saying that I have a perpetual motion machine. It doesn’t exist. I think the commission for intermediaries was attractive, but we saw the counter-party challenges. We understand the commodity space well as we have a significant presence there. That’s a good call that we took. As a result, our total exposure to NSEL was limited to around 4 crore.
Do you suggest an alternate asset class as an investment option?
Alternate is a broad category. There are alternates across real estate, private equity, venture capital, art and new emerging asset classes. We do not participate very broadly in these as our approach is more conservative in the wealth management space. We believe unless it’s a client’s mandate, we shouldn’t go for an asset class such as art. But if you want to invest in art, given our distribution capability we can bring art assets. We do not have an art fund and no art fund is distributed at this stage. So mostly it’s AIFs (alternative investment fund) but again AIFs are a recent phenomenon and meant only for UHNIs at this stage.
Our exposure to alternates are private equity, real estate and some venture capital funds. But we select the managers carefully.
What about the brokerage business? Is it not doing well?
The overall brokerage business is challenging. The retail participation has gone down and continues to remain low. We don’t expect retail participation to really come in since equity markets are dull as of now. Another aspect to the business is that the structure of market has shifted increasingly to futures and options and cash-based business which offer more margins for a brokerage firm. It has substantially increased. So those are the structural challenges. We are investing in technology in a big way. We have been behind the technology investment curve and that’s an advantage as being late in technology, I can make choices.
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